ACCA Applied Knowledge · Financial Accounting · Ratios
Marlo Co has a market price of $3.60 per share and earnings per share of 30 cents. The company pays a dividend of 12 cents per share. What are the price/earnings ratio and the dividend yield?
The P/E ratio is 12 and the dividend yield is 3.3%. P/E is the $3.60 share price divided by 30 cents EPS, and yield is the 12 cent dividend divided by the $3.60 price. The 40% figure is the payout ratio, not yield.
- AP/E 12, dividend yield 3.3%Correct
- BP/E 12, dividend yield 40%
- CP/E 30, dividend yield 3.3%
- DP/E 8.3, dividend yield 3.3%
Explanation
P/E = 3.60 / 0.30 = 12. Dividend yield = dividend per share / market price = 0.12 / 3.60 = 3.3%. The 40% figure is dividend cover inverted (payout ratio: 12/30), not yield.
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